2225 112th CONGRESS
H. R. 2225
To amend the Investment Advisers Act of 1940
to add a definition of family office.IN THE HOUSE OF REPRESENTATIVES
Mr. HENSARLING (for himself, Mr. BACHUS, Mrs. MALONEY,
Mr. GARRETT, Mr. NEUGEBAUER, Mrs. CAPITO, and Mrs. BIGGERT) introduced the following
bill; which was referred to the Committee on Financial Services
To amend the Investment Advisers Act of 1940 to add
a definition of family office.
Be it enacted by the
Senate and House of Representatives of the United States of America in Congress
SECTION 1. FINDINGS.
finds the following:
(1) Family offices are not of national
concern in that their advice, counsel, publications, writings, analyses, and reports
are not furnished or distributed to clients on a retail basis, but are instead
furnished or distributed only to persons who are members of a particular family.
(2) Family offices do not hold themselves out to the public as investment advisers.
(3) Family offices do not engage in the business of advising others, but instead
provide a wide range of services to members of the family they serve, only one
of which involves investment advice, for which they may receive compensation from
the members of the family.
(4) Since the Investment Advisers
Act of 1940 was enacted, the Securities and Exchange Commission has regularly
issued orders to individual family offices exempting them from all of the provisions
of the Investment Advisers Act of 1940.
(5) Section 409
of the Dodd-Frank Wall Street Reform and Consumer Protection Act expressly exempts
family offices from all of the provisions of the Investment Advisers Act of 1940.
(6) It was the intent of Congress that section 409 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act be interpreted broadly to encompass all family
offices as they are currently organized and operated, as well as to encompass
changes in the organization and operation of family offices in the future.
2. FAMILY OFFICE DEFINITION.
Section 202(a) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-2(a)) is amended--
in paragraph (11)(G), in the matter added by section 409(a) of the Dodd-Frank
Wall Street Reform and Consumer Protection Act, by striking `, as defined by rule,
regulation, or order of the Commission, in accordance with the purposes of this
(2) by redesignating the second paragraph (29),
as added by section 770 of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, as paragraph (31); and
(3) by adding at the end
the following new paragraph:
`(A) IN GENERAL- The term `family office' means a company (including any director,
partner, trustee, or employee of such company, when acting in their respective
capacities as such) that--
`(i) has no clients
other than family clients;
`(I) owned, directly or indirectly, by,
`(II) controlled, directly or indirectly, by, or
`(III) operated primarily for the benefit of,
`(iii) does not hold itself
out to the public as an investment adviser.
`(B) GRANDFATHERING- A person described under section 409(b)(3) of the Dodd-Frank
Wall Street Reform and Consumer Protection Act, but who otherwise meets the requirements
under subparagraph (A), shall qualify as a family office.
`(C) DEFINITIONS- For purposes of this paragraph:
`(i) CONTROL- The term `control' means the power to exercise a controlling influence
over the management or policies of a company, unless such power is solely the
result of being an officer of such company.
`(ii) FAMILY CLIENT- The term `family client' means:
charitable foundation, charitable organization, charitable trust, or other non-profit
organization established or controlled, directly or indirectly, by persons one
or more of whom is a family client.
`(IV) Any trust or estate funded exclusively by one or more family members or
established primarily for the benefit of one or more family clients.
`(V) Any limited liability company, partnership, corporation, or other entity,
`(aa) such entity is majority-owned or
controlled, directly or indirectly, by, or operated primarily for the benefit
of, one or more family clients;
`(bb) the family office
is giving investment advice to such entity; and
persons who are not otherwise defined as a family client do not own interests
in such entity.
`(VI) Any former family
`(VII) Any former
key employee, if, upon the termination of such individual's employment by the
family office or family client, the former key employee shall not receive investment
advice from the family office or the family client (or invest additional assets
with a family office-advised trust, charitable foundation, or entity), other than
with respect to assets advised, directly or indirectly, by the family office or
family client immediately prior to the termination of such individual's employment,
except that a former key employee shall be permitted to receive investment advice
from the family office with respect to additional investments that the former
key employee was contractually obligated to make, and that relate to a family
office advised investment existing, in each case, prior to the time the person
became a former key employee. For purposes of this subclause, the term `family
office' shall include any entity described under subclause (V).
`(I) IN GENERAL-
The term `family member' means:
natural person whose economic activities created or substantially contributed
to the family's wealth, and such person's spouse.
The siblings, parents, grandparents of a person described in item (aa).
`(cc) The spouse of a person described in item (bb).
`(dd) The siblings of a person described in item (bb) or (cc).
`(ee) The spouse of a person described in item (dd).
`(ff) The lineal descendant of a person described in item (bb),
(cc), (dd), or (ee).
`(gg) The spouse of a person described
in item (ff).
`(II) CONSTRUCTION- For
purposes of this clause--
`(aa) the term `lineal
descendant' includes natural children, adopted children, and stepchildren;
`(bb) the term `spouse' includes spousal equivalents; and
`(cc) the terms `siblings', `parents', and `grandparents' include
step-siblings, step-parents, and step-grandparents, respectively.
`(iv) FORMER FAMILY MEMBER- The term `former family member' means a spouse or
a descendant who was a family member but is no longer a family member due to a
divorce or other similar event.
KEY EMPLOYEE- The term `key employee' means any natural person (and such person's
spouse or lineal descendant) who is an executive officer, director, trustee, general
partner, or person serving in a similar capacity, of the family office or any
employee of the family office (other than an employee performing solely clerical,
secretarial, or administrative functions) who, in connection with his or her regular
functions or duties, participates in the investment activities of the family office.
For purposes of this subclause, the term `family office' shall include any entity
described under clause (ii)(V).
SPOUSAL EQUIVALENT- The term `spousal equivalent' means a cohabitant occupying
a relationship generally equivalent to that of a spouse.
`(D) INVOLUNTARY EVENTS- If--
`(i) a person
that is not a family client becomes a client of the family office as a result
of the death of a family member or key employee or other involuntary transfer
from a family member or key employee, or
`(ii) a person ceases to be a family client,
person shall be deemed to be a family client until the end of the 1-year period
beginning on the date that it is both legally and practically feasible for the
family office to transfer the affected assets to such person, but in no event
earlier than 1 year from the date that it becomes legally feasible to transfer
the affected assets unless it becomes practically feasible to affect such a transfer